Correlation Between Exelon and PNM Resources

Can any of the company-specific risk be diversified away by investing in both Exelon and PNM Resources at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Exelon and PNM Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Exelon and PNM Resources, you can compare the effects of market volatilities on Exelon and PNM Resources and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Exelon with a short position of PNM Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exelon and PNM Resources.

Diversification Opportunities for Exelon and PNM Resources

0.67

Correlation Coefficient

Exelon  PNM Resources

Poor diversification

The 3 months correlation between Exelon and PNM is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Exelon and PNM Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PNM Resources and Exelon is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Exelon are associated (or correlated) with PNM Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PNM Resources has no effect on the direction of Exelon i.e., Exelon and PNM Resources go up and down completely randomly.

Pair Corralation between Exelon and PNM Resources

Considering the 90-day investment horizon Exelon is expected to generate 1.84 times less return on investment than PNM Resources. In addition to that, Exelon is 1.03 times more volatile than PNM Resources. It trades about 0.04 of its total potential returns per unit of risk. PNM Resources is currently generating about 0.08 per unit of volatility. If you would invest  3,697  in PNM Resources on March 2, 2024 and sell it today you would earn a total of  137.00  from holding PNM Resources or generate 3.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Exelon  vs.  PNM Resources

Exelon

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Exelon are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Exelon is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

PNM Resources

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PNM Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, PNM Resources is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Exelon and PNM Resources

The main advantage of trading using opposite Exelon and PNM Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exelon position performs unexpectedly, PNM Resources can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in PNM Resources will offset losses from the drop in PNM Resources' long position.

The idea behind Exelon and PNM Resources pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.